A STUDY OF OPERATIONAL EFFICIENCY OF COMMERCIAL BANKS IN INDIAN FINANCIAL SYSTEM: AT A GLANCE

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1 Volume 4, Issue 6 (June, 2015) Online ISSN Published by: Abhinav Publication Abhinav National Monthly Refereed Journal of Research in A STUDY OF OPERATIONAL EFFICIENCY OF COMMERCIAL BANKS IN INDIAN FINANCIAL SYSTEM: AT A GLANCE Malaya Ranjan Mohapatra 1 Guest faculty, Shailabala Women's college, Cuttack, India malayaranjan100@gmail.com Avizeet Lenka 2 Lecturer, Nayagarh Auto. College, India lenka1avizeet@gmail.com Subrat Kumar Pradhan 3 Lecturer, Gourav College, Bhubaneswar, India subratksmart@gmail.com ABSTRACT The Indian banking system consist a major portion in Indian financial system and in its economy. India is considered as best platform for banking operation for its conservatism practices. In this present study we have analysed the operational efficiency of commercial banks in India with objectives of comparative performance different sectors of commercial banks, profitability position of different sector in relation to number of employees and challenges faced by public sector banks in Indian banking scenario. The present study has taken some parameters like labour productivity, branch expansion, profitability ratio etc to analyse the efficiency of different sector banks. The present study is an evident that the internal management and employee efficiency of foreign banks are far better than other sectors of commercial banks. Maximum workers are working with public sector banks due to out-dated technology and improper employee management whereas foreign sector banks which is less in number but using latest technology to render the services to their customers have very less staff. The present study has revealed that business per employee and profit per employee maximum in case of foreign banks during the study period. The present paper shows that public sector banks are lagging behind regarding various financial parameters in comparison with other sector banks. Hence there is a need to consider above listed challenges to bring optimize effective management in public sector banks. Keywords: Operational Efficiency; Indian Banking Sectors; Public Sector Banks INTRODUCTION The Indian banking system is most popular and secular due to its structure and functions. The banking system consist a major portion in Indian financial system. Financial crisis, devaluation of money etc does not affect our banking system so badly as compared to other countries. It is also a reason for increase the operation of foreign banks in India. India is considered as best platform for banking operation. In present situation there are many commercial banks, co operative banks, rural banks operating in India. Available online on 13

2 In this present study we have analysed the operational efficiency of commercial banks in India. The present paper tries to find out the labour efficiency and profitability position in relation to employee of different sector of commercial banks. OBJECTIVES OF THE STUDY The main purpose of this study is to examine the functional aspects of commercial banks in India during last some years with following objectives. 1. To analyze the comparative performance of public sector, old private sector,new private sector and foreign sector banks. 2. To study the profitability position of different sector commercial banks in relation to number of employees 3. To study the challenges face by public sector banks in Indian financial system REVIEW OF LITERATURE Review of literature has vital relevance with research work. Due to literature review the possibility of repetition of study can be eliminated and another dimension can be selected for the study. Several researches have been conducted to analyse the different aspects of commercial banks in India. Some of these researches are listed below: Prashanta Athma (2000), in his Ph D research submitted at Usmania University Hyderabad, formance of Public Sector Banks A Case Study of State Bank of Hyderabad, made an attempt to evaluate the performance of Public Sector Commercial Banks with special emphasis on State Bank of Hyderabad. The period of the study for evaluation of performance is from 1980 to The major findings of this study are that since nationalization, the progress of banking in India has been very impressive. All three types of Deposits have continuously grown during the study period, though the rate of growth was highest in fixed deposits. Zacharias Thomas(1997), Ph D Thesis, formance effectiveness of Nationalised Bank- A Case Study of Syndicate Bank, submitted to Kochin University (1997), Thesis studied the performance effectiveness of Nationalized Bank by taking Syndicate Bank as case study in his Ph.D thesis.thomas has examined various aspects like growth and development of banking industry, achievements of Syndicate Bank in relation to capital adequacy, quality of assets, Profitability, Social Banking, Growth, Productivity etc. He found that five nationalized banks showed low health performance, seven low priority performance and eleven low efficiency performance in comparison with Syndicate Bank. Singh R (2003), in his paper Profitability management in banks under deregulate environment, IBA bulletin, No25, has analyzed profitability management of banks under the deregulated environment with some financial parameters of the major four bank groups i.e. public sector banks, old private sector banks, new private sector banks and foreign banks, profitability has declined in the deregulated environment. He emphasized to make the banking sector competitive in the deregulated environment. They should prefer noninterest income sources. Singla HK (2008), in his paper, financial performance of banks in India, in ICFAI Journal of Bank Management No 7, has examined that how financial management plays a crucial role in the growth of banking. It is concerned with examining the profitability position of the selected sixteen banks of banker index for a period of six years ( ). The study reveals that the profitability position was reasonable during the period of study when compared with the previous years. SBI Research Department in 2000, through its paper formance analysis of 27 Public sector banks published in SBI monthly review performance, Vol XXXIX, was prepared by Economic Research Department of State Bank of India, is to analyze the formance of the 27 Public Sector Banks for the year vis-a-vis the preceding year. Selecting four different categories of indicators- formance, Efficiency, Vulnerability and labor productivity indicators, carried out the analysis VOL. 4, ISSUE 6 (June 2015) 14

3 Ram Mohan TT(2003), in his paper Long run performance of public and private sector bank stocks Vol 37, has made an attempt to compare the three categories of banks-public, Private and Foreignusing Physical quantities of inputs and outputs, and comparing the revenue maximization efficiency of banks during The findings show that PSBs performed significantly better than private sector banks but not differently from foreign banks. The conclusion points to a convergence in performance between public and private sector banks in the post-reform era, using financial measures of performance IMPORTANCE OF STUDY The Indian banking system has come a long way, dating back to the colonial era till now. Indian banking system particularly operation of commercial banks deserves significant attention in a developing economy because it is one of the major element of Indian financial system. The literature review of this study reveals that most of the researches on banking were limited to its profitability, customer preference, investment pattern etc. However, it has evaluated that existing studies are either limited in scope or sufficient period has elapsed since these were conducted. Hence, the present study entitled A STUDY OF OPERATIONAL EFFICIENCY OF COMMERCIAL BANKS IN INDIAN FINANCIAL SYSTEM: AT A GLANCE tries to focus on internal management as well as operational capacity of different sectors of commercial banks. RESEARCH METHODOLOGY The present study primarily based on secondary data. We have collected data from various sources like RBI, government reports and reports on banking profile, pertaining the period from to To compare the performance of selected sector banks, ratio analysis method is used. The various ratios used are a) labour productivity ratio, b) profitability ratio. ANALYSIS AND INTERPRETATION Commercial Banks Expansion Table 1. Number of Banks in Different Sectors Branch Expansion The total numbers of commercial bank branches have increased from in to in in India. Table 2 shows that public sector banks have maximum number of branches but if we consider growth rate then new private sector banks have increased their branches % from to followed by public sector banks (37.52%) and old private sector banks (33.97%). The foreign banks have also increased their branches at a slow rate of 20.58%. VOL. 4, ISSUE 6 (June 2015) 15

4 Table 2. Bank Offices in Different Sector Banks Position of Table-3 shows the position of employees in different sector banks from period to It is noticed that maximum workers are working with public sector banks. Since these banks have maximum branches in the country and using out dated technology, therefore, they have employed large staff with them whereas foreign sector banks which are less in number but using latest technology to render the services to their customers have very less staff. Table 3. s Of Different Sector Banks Labour Productivity Labour productivity shows the capacity of employees to produce wealth to banks. Table 4 shows the business per employee of different sector of commercial banks. The business per employee is maximum in case of foreign banks during the study period. The business per employee of foreign banks was in where as it was in case of public sector banks in Table 4. Labour Productivity of Different Sector Banks (Amount in Millions) Sector Banks Public Sector Banks Old Pvt. Sector Banks New Pvt. Sector Banks Foreign Sector Banks Total Commercial Banks Profitability per Profitability per employee is determined by number of employee with total profit of different sector of commercial banks. Table 5 is an evident that profit per employee were maximum in case of foreign banks during the study period. Therefore we can determine that the internal management and employee efficiency are very good as compare to other sectors of commercial banks. In the period VOL. 4, ISSUE 6 (June 2015) 16

5 profit per employee of foreign banks is 4.56 whereas it is only 0.63 in case of public sector banks. The new private sector banks have second largest profit per employee with a figure of 1.18 and old private sector banks have Table 5. Profitability of Different Sector Banks (Amount in Millions) Sector Banks Profit Profit Profit Profit Profit Public Sector Banks Old Pvt. Sector Banks New Pvt. Sector Banks Foreign Sector Banks Total Commercial Banks Challenges and Opportunities Faced By Public Sector Banks The present study has provided some relevant information regarding operational efficiency of different sector of commercial banks. The operational capacity of public sector banks is not satisfactory as compare to other sectors of commercial banks. There are some major challenges faced by public sector banks in Indian economy. These are: Competition Policy: In this globalised era, banks are equipped with modern technology to face competition both internally and externally. Public sector banks have to introduce innovative services and products for strong competition. Customer Satisfaction: Customer satisfaction is the one and only tool for sustainable growth of a particular banking sector. Public sector banks customer orientation policy are not attractive as compare to foreign banks and private sector banks. So, speedy transaction, quick response, public feedback can be used for improvement of customer satisfaction in public sector banks. Technology: The present world needs innovative and consumer friendly technology in banking sectors. In this context, technology will be the key to reduce transaction costs, offering customized products and managing risks. Foreign banks are very much advance in this area but public sector banks is lagging behind in technology. There is a need for use improvised technology in public sector banks in India. Management of NPA: Non-performing asset in banking sector creates a major burden in fund utilization. Excess amount of NPA will impact on credit policy of banks. The ongoing financial crisis had its toll on export-related sectors like IT, textile and SMEs. This may indirectly impact banks asset quality. There is, therefore, a pressing need to ensure adequate risk-management mechanisms to overcome this challenge. New Basel capital accord: Indian banking sectors are in ongoing process for implementing Basel II accord. The Basel ii has focused on three pillars viz capital adequacy, supervisory review and market discipline. The new Basel will increase the level of capital requirement in banking sectors. Further, banks and supervisors will be required to invest considerable resources in upgrading technology, including adequate data access, technical capacity and human resources to meet the minimum standards in the new Accord. Human Resource Management: Human Resource Management is tough task in public sector banks in India. Various committees also formed to bring some changes in human resources management. The public sector banks have to conduct employee awareness, productivity standards, and ideal remuneration policy to optimize effective management of human resource in public sector banks. VOL. 4, ISSUE 6 (June 2015) 17

6 CONCLUSION The present study has arrived at a conclusion that the overall operational efficiency of public sector banks is not satisfactory as compared to other banks. The foreign banks in India have shown an increasing trend in case of number of branches. It is also an evident that their internal management and employee efficiency of foreign banks are far better than other sectors of commercial banks. The growth rate of new private sector banks in case of number of branches are maximum followed by public sector banks and old private sector banks. The foreign banks have also increased their branches at a slow rate. Maximum workers are working with public sector banks due to out-dated technology and improper employee management whereas foreign sector banks which are less in number but using latest technology to render the services to their customers have very less staff. The present study has also revealed that business per employee and profit per employee is maximum in case of foreign banks during the study period. The present paper shows that public sector banks are lagging behind regarding various financial parameters in comparison with other sector banks. Hence there is a need to consider above listed challenges to bring optimize effective management in public sector banks. REFERENCE 1. Prasanta Athma (2000): formance of Public Sector Commercial Banks A Case Study of State Bank of Hyderabad, Ph.D. Thesis; Osmania University, Hyderabad; Finance!l Idia-Abstract; Vol. XIV, 11, p Zilrharias Thomas (1997): formance effectiveness of Nationalized Banks-A Case Study of Syndicate Bank; Ph.D. Thesis, Cochin University, Kochi; India; Vol. XIV, March, pp Singh, R. (2003): Profitability Management in Banks under Deregulated 386 Environment, IBA Bulletin, 25(7): Singla, H. K. (2008): Financial formance of Banks in India, The ICFAI Journal of Bank Management, 7 (1): SBI-Research Department (2000), formance Analysis of the 27 Public Sector Banks: , SBI Monthly Review, Vol. XXXIX, No. 10, Oct., pp Ram Mohan TT (2003), Long-run formance of Public and Private Sectors Bank Stocks, Vol. XXXVII, No.8; February, pp VOL. 4, ISSUE 6 (June 2015) 18